Financial Reform Watch

Congress and the Administration have made significant progress today in refining the proposal released Saturday by Treasury Secretary Hank Paulson for a $700 billion purchase by the government of troubled financial assets. Prospects remain strong for Congress and the Administration to adopt a plan by the end of the week.

Between the release of the plan on Saturday and the opening of the markets today, Paulson made two important changes to his original plan. The first change was to broaden the class of assets eligible for purchase to include non-mortgage assets as deemed necessary. The second change was to allow foreign institutions with a significant US presence to participate in the asset purchase program.

Today’s action has centered around congressional efforts to gain more oversight over Treasury’s activity, to include the authority for Treasury to take steps to prevent foreclosures, and to limit executive compensation for outside firms who would manage assets under the Treasury plan. Democratic leaders are also exploring provisions that would authorize Treasury to take warrants from firms that sell assets to it so taxpayers can benefit from their improved financial performance.

At day’s end, the Treasury Department appears prepared to accept outside oversight and a role in restructuring the terms of mortgages to help prevent foreclosure. Executive compensation limits are not gaining favor with the Administration and the issue of Treasury obtaining warrants is under review.

Given the progress today, there is a strong likelihood an agreement can be announced before the markets close on Tuesday. There is a palpable sense in Washington that progress must occur each day to keep the markets as calm as possible under these circumstances.